Government sticks to 100% FDI in pharma takeovers

The government has finally decided to retain the policy of allowing 100-per cent foreign investment in existing pharma firms, despite concerns raised by the commerce ministry that MNC takeovers of Indian pharma units could lead to non-availability of affordable drugs.

The ministry of commerce and industry had proposed tightening of foreign direct investment (FDI) norms for the pharmaceutical sector by pruning the limit of FDI allowed in "critical" brown field pharma companies to 49 per cent.

The Department of Industrial Policy and Promotion (DIPP) of the commerce ministry, however, said that as far as the contentious issue of non-compete clause is concerned, the Foreign Investment Promotion Board (FIPB) will take a view on a case-by-case basis.

"The government has reviewed the position in this regard and decided that the existing policy would continue with the condition that 'non-compete' clause would not be allowed except in special circumstances with the approval of the FIPB," the DIPP said in a press note.

A rush for acquisitions of Indian pharma firms by MNC drug firms has resulted in closure of some of the units producing bulk drugs, resulting in a shortage of these medicines.

The DIPP had earlier proposed stringent norms to tighten the foreign direct investment (FDI) policy for the sector, and had sought a reduction in the FDI cap to 49 per cent from 100 per cent in rare or critical pharma verticals.

However, the union cabinet at its meeting dismissed the DIPP concerns.

The DIPP, in a draft cabinet note, had proposed a number of steps for tightening FDI in existing domestic pharmaceutical companies.

The department had proposed that the foreign company would not be allowed to close down an existing R&D centre and would have to mandatorily invest up to 25 per cent of the FDI in the new unit or R & D facility. The total investment, as per the conditions proposed, would have to be incurred within 3 years of the acquisition.

Some of the major acquisitions of Indian pharma firms in recent times include the Rs5,168-crore deal of US-based Mylan Inc for acquiring Bangalore-based pharma firm Agila Specialties, a subsidiary of Strides Arcolab in September 2013; Japanese firm Daiichi Sankyo's 2008 acquisition of the country's largest drug maker Ranbaxy for $4.6 billion and US-based Abbot Laboratories' acquisition of Piramal Health Care's domestic business for $3.7 billion.

DIPP had said that over 96 per cent of the total FDI in the sector between April 2012 and April 2013 has come into the brownfield pharma, or existing projects and companies.

India permits 100 per cent FDI in pharma through automatic approval route in the greenfield, or new projects.

While DIPP had failed to block the Mylan-Strides Arcolab deal (See: US firm Mylan buys out Stride Arcolab's injectables unit ) which it felt, was not in the interest of the health security of the nation, its fears that with MNCs taking control of Indian firms, there could be reduction in supply of vaccines, injectables, particularly for cancer and active pharmaceutical ingredients are not unfounded either.